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NYSE Arca Files Paperwork for Bitwise Bitcoin ETF Approval

New details have surfaced about the bitcoin exchange-traded fund (ETF) proposed by Bitwise and NYSE Arca.
Bitwise Asset Management announced its intention to launch the ETF
earlier this month. If approved, it would be the first bitcoin ETF to
make it to market in the U.S.

At the time, the company said NYSE Arca would file the 19b-4 rule change
proposal in the near future. NYSE Arca indeed filed the form the same
day, but it does not appear to be listed on any SEC website, possibly
due to the ongoing U.S. government shutdown.

As a result, the document went largely unnoticed, despite being posted
on NYSE Arca’s own website. (An SEC spokesperson did not immediately
respond to a request for comment.)

When Bitwise first announced the ETF proposal, the company said it
differed from previous such efforts because a regulated third-party
custodian would store the bitcoins. The company also said it would draw
pricing data from a large number of exchanges, including both spot and
physically settled futures markets, to calculate the index determining
the assets’ value.

The filed proposal elaborates on the methodology, noting, for example,
that these prices will be “weighted such that bitcoin prices from
exchanges with a greater amount of the trading volume in the prior hour
are weighted more heavily than bitcoin prices from exchanges with lesser
amounts of volume.”

“The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices and to protect
investors and the public interest,” the proposal says. In previous ETF
rejections, the SEC has highlighted concerns about market manipulation.

NYSE Arca’s proposal also touched on concerns about what impact any such manipulation might have on the bitcoin market, stating:

“… given the fungible nature of bitcoin, the Index Provider believes
that the potential impact on Index values of individual exchanges
experiencing outside attempts to manipulate either reported volume or
reported prices is muted by the use of a large number of exchange price
and volume inputs.”

While NYSE Arca has filed the proposal, the clock has not yet started
for its approval or rejection. Attorney Jake Chervinsky, of law firm
Kobre Kim, told CoinDesk that “the SEC’s deadline for deciding an ETF
proposal is triggered by publication in the Federal Register.”

“That almost certainly won’t happen until after the government shutdown
ends,” he said via email. “According to the SEC’s operations plan, they
have discontinued all processing and review of proposed rule changes due
to the lapse in appropriations.”

Previous bitcoin ETF proposals have been withdrawn or rejected, with
Cboe most recently pulling its joint effort with VanEck and SolidX
earlier this week. VanEck CEO Jan van Eck cited the government shutdown
as a key reason for this, explaining that the companies were having
conversations with the SEC prior to the shutdown, but that these
conversations had ceased. However, he said the companies would re-file
after the government re-opens.